Chinese investors buy Caesars’ games unit for USD4.4 billion

Investors led by Chinese online games developer Shanghai Giant Network Technology Co. agreed to buy Caesars Entertainment Corp.’s online casino-style games unit Playtika Ltd. for USD4.4 billion in cash, even as gambling remains illegal in mainland China.
The consortium includes Yunfeng Capital, the private equity company founded by Alibaba Group Holding Ltd. Chairman  Jack Ma, China Oceanwide Holdings Group Co., China Minsheng Trust Co., and Hony Capital Fund, the purchasers said Sunday in a statement. Playtika will remain independently run from its headquarters in Herliya, Israel, they said.
The deal gives the Chinese buyers a foothold in a fast-growing segment of the gaming industry, as users turn to mobile applications over the PC- and console-based systems. Organized gambling is illegal in China with the exception of licensed casinos in Macau, and while rules aren’t clear for online games, authorities have regularly raided operators.
“Despite the legal issues in China, these Chinese investors are more comfortable playing the long game,” Union Gaming Group LLC analyst Grant Govertsen said. “Online gaming, eventually, should be massive after the various regulatory hurdles are worked out even if it takes a significant number of years.”
Police in Zhejiang province arrested 36 suspects involved in a lottery-based online gambling operator worth more than 100 million yuan (USD15 million), Xinhua News Agency reported July 1. Last year, Guangdong police busted an online gambling ring that took in $66 billion in monthly bets, arresting over 1,071 people involved in 199 websites, the official agency reported.
For Caesars, it’s an exit from a business that it bought in 2011 via the Caesars Interactive Entertainment arm. The unit’s World Series of Poker and real-money online gaming businesses will not be included in the transaction, and the virtual currency used on the Playtika platform will continue not to be exchangeable for real money, according to Sunday’s statement.
Playtika was “the first to introduce free-to-play casino-style games to social networks,” according to the company’s website. Its “Caesars Casino” game, playable as a Facebook application, includes slot machines, blackjack, roulette and video poker.
“We are incredibly excited by the commercial opportunities the consortium will make available to us, particularly in its ability to provide us access to large and rapidly growing emerging markets,” said Robert Antokol, co-founder and chief executive officer of Playtika.
China’s Giant had been in talks to acquire the online game unit for more than $4 billion, according to people familiar with the matter on July 22. The Giant-led group has emerged as the leading contender for the business after an auction process, said one of the people, asking not to be identified because the matter is private.
“Playtika today is a highly profitable growth company with more than 1,300 employees, multiple top grossing titles and millions of daily users,” said Mitch Garber, chairman and chief executive officer of Caesars Interactive.
The deal, subject to regulatory approvals, is expected to be completed in the third or fourth quarter of 2016. Raine Group LLC served as Caesars Interactive’s financial adviser and Latham & Watkins LLP served as legal adviser. CODE Advisers LLC was financial adviser and Fenwick & West LLP served as legal adviser to Shanghai Giant.
Shanghai Giant, backed by billionaire Shi Yuzhu, delisted from the New York Stock Exchange in 2014 and entered the Chinese stock market after a reverse merger with Shenzhen-listed Chongqing New Century Cruise Co. Shares of Chongqing New Century have been suspended since July 13 pending a major transaction involving an “overseas mobile phone games company,” it said. Edward Dufner, Daryl Loo, Bloomberg/MDT